Tomorrow, EDF will be less a company than a vast national nuclear program

Tomorrow, EDF will be less a company than a vast national nuclear program

Seventeen years after its IPO, a step back for EDF. Already owner of nearly 84% of the capital, the State will nationalize 100% of the French energy company and withdraw it from the rating. A way to get it out of the “dictatorship of the markets”. And more precisely that of the financial rating agency Standard & Poor’s (S&P) which, frightened by the financial forecasts and the lack of visibility on the unavailability of part of the nuclear fleet, continues to pose the threat of a further downgrading of EDF’s rating. A prospect feared by the government and EDF since it would hinder the group’s ability to renegotiate its debt and negotiate new lines of financing. Certainly, a nationalization will not remove the surveillance of the agencies, but it gives hope for less aggressiveness from analysts on the debt due to the strengthening of the State guarantee.

The state will fund most of the program

The stakes are high. However, it goes way beyond that. Because, if it is indeed a necessary condition to ensure the future of the group, this renationalization is in no way a structural solution to the challenges of its transformation to carry out the revival of the tricolor nuclear. It is, therefore, only the first stage of a very long road whose arrival point will be the construction of 6 new nuclear reactors (known as EPR2) between 2035 and 2042, not counting the eight other optional reactors such as announced Emmanuel Macron in his Belfort speech on February 10. Or, neither more nor less, the largest nuclear power program in the Western world for forty years. A pharaonic project of considerable industrial and financial complexity, the cost of which is just as much: more than 50 billion euros, an envelope unaffordable for EDF. It is therefore the State that will provide most of the funding. The energy company will nevertheless be put to use. Enough to swallow up all its financial resources for 20 years, and force it to rapidly increase its equity. This is the price to pay to help ensure France’s energy independence, its only mission, or almost now. So much so that, tomorrow, EDF will be more like a vast national industrial program than a real company focused on its financial results.

Arm wrestling in sight with Brussels

However, between today’s renationalization and this point of arrival, the path will be long and complicated. It will first go through a new tight negotiation in Brussels concerning the regulation of the installed nuclear fleet, the financing of the new EPRs, and the restructuring of the group’s enormous debt, which amounted to nearly 43 billion euros. at the end of last year and could flirt with 100 billion at the end of 2022, according to S&P. In this context, the French objective is clear: this regulation must make it possible both to fix the kilowatt-hour exit prices over time and to obtain affordable electricity, as soon as the first EPR2s are commissioned between 2035 and 2037. For Paris, it is out of the question for a nuclear program, which spans a century between design and dismantling, to be exposed to market prices, which are often volatile.

Something to make Brussels cough. If the Commission cannot oppose nationalization, it can, on the other hand, impose “Chinese walls” between the regulated activities benefiting from State aid and the others. Therefore, counterparts to the French plan are obviously. Even if the war in Ukraine has placed the questions of energy independence at the heart of the priorities, it still has little taste for integrated monopolies. Not very “market spirit” indeed. One way to return to the Hercules project of organizing EDF, buried last year in front of union discontent. EDF will indeed have to sell assets to refocus on nuclear power, hydraulics and perhaps its subsidiary Enedis. In return, the stakes in Edison, Dalkia… will be sold, while the other French giants, Engie and TotalEnergies are already eyeing EDF’s activities in renewable energies. Jean-Pierre Clamadieu, chairman of the board of Engie, even said so publicly, at the risk of arousing annoyance within the state, EDF, but also its board of directors.

Looking for a pilot

If the path is long, the government must nevertheless move quickly. Commissioning in 2035-2037 supposes starting work in 2027-2028, provided that all the authorizations necessary for construction have been obtained. To carry out this colossal project, the State has just launched the succession process for CEO Jean-Bernard Lévy. The idea is to replace him quickly, well before the end of his mandate in March 2018. If the latter will remain the one who obtained the revival of nuclear power, his successor will be responsible for carrying it out. Who will replace him ? Many will come and knock on the door. And for good reason: driving for 5 or 10 years the largest nuclear program in the world is something to dream about, even if the annual remuneration capped at 450,000 euros in public companies will be well below those in force in the private sector. The rare bird will have to have the shoulders to put a company of this size under tension and ensure that a French nuclear industry is structured. An engineer profile seems necessary, young moreover to be able to register for the duration of two mandates, necessary to take up such a challenge.